Field of the Invention
The present invention generally relates to a direct authentication system and method, more particularly, to a new two-factor authentication method used by a business to authenticate its customers' identity utilizing trusted-authenticators.
Description of the Related Art
Fraud and Identity theft, the taking of a person's identity for the purpose of committing a criminal act, is a growing national concern, both in terms of its effect on its victims, and its potential national security implications. Checking account fraud costs US banks USD 698 million in 2002, according to the American Bankers' Association, while those perpetrating the fraud attempted to take USD 4.3 billion in total. Identity theft costs financial institutions USD 47.6 billion in 2002-2003. A report issued in September 2003 by the Federal Trade Commission estimates that almost 10 million Americans were victims of some type of identity theft within the previous year. Especially unnerving are the numerous accounts of the ordeals that victims endure as they attempt to deal with the results of this crime. They are assumed to be responsible for the debts incurred by the thief until they can demonstrate that they have been victims of fraud. They are targeted by collection agencies trying to collect on debts generated by thieves who open new accounts in their name. They have to deal with damaging information placed in their credit files as a result of the imposter's actions. It's well known how this can happen. Fraudulent charges may be posted to someone's checking account if the thief knows the account number and banks routing number. Identity thieves can “take over” an existing account and withdraw money, as well as change other account information such as mailing address, if the thief knows a few pieces of sensitive personal information, especially the account holder's Social Security Number (SSN). Perhaps worst of all, a thief can easily open a new account in someone else's name by completing an application for a new credit account, using the victim's name and SSN, but with a different address. The credit grantor, whether it be a retailer offering instant credit accounts via their website, a telecommunications company offering a new cell phone account, a bank offering a credit card, or an auto dealership offering a new car loan, uses the information provided by the thief to obtain a credit report on the person named in the account application. If the report indicates that the person named in the application is a good credit risk, a new account will likely be opened in the victim's name. But the victim never knows about the late and unpaid bills, until his credit is ruined.
Online Fraud happens because online businesses such as retailers assume that the person shopping online is the same person whose personal or financial information are given. Identity theft happens because creditors assume that the person filling the application is the same person whose name and personal information are used in the application, unless there is clear evidence to the contrary. A business “authenticates” a customer by matching personal and financial information provided, such as name, SSN, birth date, etc., with information contained in third party databases (indirect authentication). If there is a match on at least a few items of information, it is assumed that the person is the same person who he says he is. This assumption itself is a direct result of a belief that sensitive personal and financial information can be kept secret and out of the hands of thieves. Yet the widespread incidence of fraud and identity theft, as detailed by the personal stories of its many victims, clearly demonstrates that this notion is false. A recent paper by Prof. Daniel Solove (“Identity Theft, Privacy, and the Architecture of Vulnerability”, Hastings Law Journal, Vol. 54, No. 4 (2003), page 1251) of the Seton Hall Law School aptly points out that “The identity thief's ability to so easily access and use our personal and financial data stems from an architecture that does not provide adequate security to our personal and financial information and that does not afford us with a sufficient degree of participation in the collection, dissemination, and use of that information.” He further goes on to say “The problem, however, runs deeper than the public disclosure of Social Security Numbers (SSN), personal and financial information. The problem stems not only from the government's creation of a de facto identifier and lax protection of it, but also from the private sector's inadequate security measures in handling personal information”. “Further, identity thieves can obtain personal and financial information simply by paying a small fee to various database companies and obtaining a detailed dossier about their victims.” There's only a certain amount that an individual can do to prevent sensitive information from getting into the wrong hands, such as keeping a tight grip on one's purse or wallet. Beyond that, the information is easily available to a thief in numerous other ways. It may be available through certain public records. It can be purchased from publicly available databases for a nominal fee. It can be copied from medical claims forms lying around in a doctor's office. Other methods include breaking into various commercial databases containing sensitive information about business's customers, many times with the help of an insider. As long as the authentication of new credit applications is based upon knowledge of a few items of personal information that are supposed to be confidential, the only way to truly prevent this type of identity theft is to keep one's personal information out of the hands of thieves, an impossible task. This is also true in the case of identity theft involving account takeovers, in which the thief uses knowledge of personal information about the victim to obtain information needed to take over someone's existing account.
There have been many attempts to solve above issues and concerns. One being the recent paper by Prof. Lynn LoPucki of the UCLA School of Law (www.ssrn.com/abstract=263213). The paper addresses many of these concerns, and suggests an approach to the identity theft problem that addresses the fundamental flaws in the process. This approach does not depend on keeping personal information secret, asking out-of-wallet questions, or computing fraud scores based on historical data and analytical fraud models. LoPucki's approach, which he calls the Public Identity System (PIDS), would establish a voluntary list of people concerned about identity theft, and who consent to be directly contacted for verification when someone applies for credit in their name. The list would be maintained by a government agency. An individual would voluntarily provide his/her personal information to the list, including name, SSN, and perhaps other identifying information. A thorough authentication process would ensure that new members of the list are truly the persons they claim to be. A personal appearance before the government agency that maintains the list would be required. Individuals participating in PIDS would specify one or more standardized ways that a creditor should contact them when the creditor has received a new account application in their name. Contact methods would likely be limited to a phone call, e-mail (encrypted or unencrypted), or US Mail. When a creditor receives a new account application, the creditor would consult the list to determine if the person named in the application, as identified by a SSN or other information, is a PIDS participant. If the named person is not a participant, the new account application would be processed in the usual manner. If, however, the named person is a PIDS participant, the creditor would contact the individual directly using one or more of the contact methods specified in the instructions provided by the individual.
A PIDS participant may even require, under some circumstances, a personal appearance before the creditor by anyone applying for a new account in his or her name. The reason for contacting the participant would be to verify that the participant is truly the person who submitted the new account application. To significantly reduce identity theft using this approach, creditors would need to have an incentive to consult the list and follow the instructions given, and consumers would need to participate in PIDS in large numbers.
Although Prof. LoPucki's approach addresses the fundamental flaws in the credit granting process responsible for identity theft, it is time consuming for creditors to verify customer's identity. Also, some difficulties may arise with its implementation. The list of PIDS participants, together with their Social Security Numbers and contact information, would reside on a government website, and the information would be available to the public. This would only be implemented if the laws were changed to prevent knowledge of this information alone as providing “proof” of identity, as well as preventing other types of privacy invasions that might be enabled with public access to such information. Although the legal changes would make one's personal information much less useful to an identity thief, it is not clear how comfortable people would feel about an arrangement that allows their personal information to be made public in such an overt manner. In addition, PIDS participants would also need to personally appear before the government agency managing the list. These factors may inhibit many people from participating in PIDS. Since creditors would be required to directly contact individuals named in an account application if the person's name appears on the list, creditors may find this type of “direct authentication” process to be burdensome, especially if it involves more than a simple phone call or email. This may lead creditors to oppose PIDS. In addition, there is the question of how the creditor should authenticate the person taking the call, or responding to the email. How can the creditor be sure that the person taking the call, or responding to the email, is truly the person who joined PIDS, and who now should be queried about the credit application? Finally, the implementation of PIDS would seem to require the establishment of a new government bureaucracy to perform necessary functions such as establishing and maintaining the PIDS list, meeting with those individuals seeking to participate, verifying their identity credentials, and establishing the standardized methods by which creditors will contact and interact with PIDS participants. Of course, implementing any alternative to PIDS would also require a certain amount of up-front work to develop the necessary capabilities and infrastructures. And while it is not unreasonable for a government agency (such as a state motor vehicles bureau) to undertake at least some of these tasks, it is not clear whether any federal or state agencies would be ready and willing to fulfill the entire role.
Another possible solution has been suggested to modify Prof. LoPucki's approach (PIDS procedure) somewhat to take advantage of the existing trust relationships that individuals have already established with various organizations that they deal with. Rather than requiring creditors to authenticate applicants for new accounts by contacting them directly, these interactions could instead be performed by a “trusted authenticator.” The trusted authenticator would be an entity that already knows the individual, maintains personal information about that individual, and has established a trusted relationship with that person. The advantage of using trusted authenticators is that the authentication process can be built on trust relationships and infrastructures already in place. A reasonable candidate for such a trusted authenticator would be a bank or other financial institution with whom the individual has already established an account. After all, if most people trust a bank to handle their money and keep it safe, trusting that same bank to authenticate their identities in other financial transactions should be natural. Prof. LoPucki's paper hints at such an arrangement in its discussion of how list members may choose to be contacted:
The [e-mail] contact could be directly with the owner or through the owner's trusted intermediary. Instead of creating a new government bureaucracy to implement PIDS, the existing infrastructures and trust relationships within the financial services community could be enhanced to more efficiently derive the same benefits that PIDS provides.
In this modified authentication procedure, a list of all individuals who choose to participate (the “participants”) would still be needed. The list would contain a name and SSN of each participant, together with the identity of their trusted authenticator. The list would be maintained by a new organization created by the financial services community specifically for this purpose, rather than by the government. However, the information on the list would not be accessible by the general public, but only by creditors and other members of the financial services community acting as trusted authenticators. The modified authentication procedure works as follows:
The creditor, upon receiving a new account application, checks the list to determine if the person named in the application is a participant. If so, the creditor queries the trusted authenticator designated on the list, and requests verification that the person named in the application is actually the person filing the new account application. If the person is not a participant, the creditor will process the application in the usual way.
Upon receiving a request from a creditor for direct authentication of a participant, who is also one of its customers, the trusted authenticator contacts its customer via a secure email message or phone call, as specified by the customer.
When communication is established, the trusted authenticator must first determine that it is actually communicating with its customer, and not someone else who has intercepted the email or phone call.
An email would contain a link that takes the customer to an authentication screen on the trusted authenticator's website. Here the customer would provide a password or Personal Identification Number (PIN) to authenticate himself/herself. The authentication process may also include an additional biometric factor such as a fingerprint or voiceprint. Most likely, the method of authentication used would be the same as the customer would use for online banking, which provides access to his/her banking accounts online.
A phone call would contain, at least, a request for the customer to provide a PIN or some other secret. A more secure authentication process might include an additional biometric factor, such as a voiceprint. Again, the method of authentication may be the same as the customer may use to perform telephone banking, which provides access to his/her banking accounts over the phone. Once the trusted authenticator has verified the identity of its customer, the trusted authenticator asks its customer whether he/she has filed a specific application for credit, as indicated in the creditor's request for authentication.
If the customer responds affirmatively, the trusted authenticator replies to the creditor that the application appears to be authentic. If the customer responds negatively, the bank responds to the creditor that the application appears to be fraudulent.
The first problem with this solution is the fact that the trusted authenticator contacts its customer via an email message, which allows for phishing or brand spoofing. The customer could receive an email from a user falsely claiming to be the trusted authenticator in an attempt to scam the customer into surrendering private information that will be used for identity theft.
The second problem is the fact that a list of all individuals who choose to participate would still be needed. This will add to privacy and security concerns.
Another problem is the fact that this authentication method lacks the real-time authentication and therefore it is not suited for online transactions.
There have been many attempts to solve the online identification problems using tokens, smart cards or biometrics authentication methods, but these methods failed due to high cost and consumers' dissatisfactions:
Password Generation Tokens—creates custom passwords each time they are activated. The cost of each token makes this type of two-factor authentication method suited only for enterprise spaces and not to the consumer level outside of the enterprise. Another problem with this method is that the passwords are generated using an algorithm that is based on both a unique user ID and the current time, which makes the next generated password guessable. Another drawback of this authentication method is that a consumer has to manage different tokens for different relationships.
Biometrics—measure unique bodily characteristics such as fingerprint as a form of identification. Again, the cost of the devices makes this type of two-factor authentication method suited only for enterprise spaces. For privacy and security reasons, it's not suited to consumer level authentication where biometric images need to be stored and transmitted over a public network such as the Internet for authentication (opens to theft or interception).
Smart Cards and—store information on a tiny computer chip on the card. This type of two-factor authentication method requires a reader device and therefore makes it suited only for enterprise spaces. There have been many attempts to implement this method to the consumer level, but each time it failed because consumers find it difficult to use (Hooking up smart card readers to computer systems), costly and software dependent.
Smart Tokens—are technologically identical to the smart cards with the exception of their form factor and interface. Again, many attempts to implement this type of two-factor authentication method to the consumer level failed due to the same reasons: cost and consumer adoption (difficult to use and difficult to manage).
In view of the foregoing, a need exists for a new and improved direct authentication system and method via trusted-authenticators that validates customers' identity without the deficiencies and disadvantages of the prior arts, mainly the cost and consumer adoption. This new direct authentication system and method via trusted-authenticators will reduce the identity theft, fraud and customer privacy concerns, will be secure, easy to use and manage, will be inexpensive, will offer a high level assurance that an individual is who he/she claims he/she is, and will provide a real-time authentication solution that is suited for the consumer level authentication where real-time identity validation of the consumer is necessary.